Case Study: Integrating a private, Chinese acquisition
In the mid ‘90’s, a former in-house manufacturing division of ABC Corp. made its debut as an independent company. Its name was XYZ Corp., and its specialty was producing high-tech widgets used in telecommunications gear, high-tech medical industry testing and measurement devices. Backed by proceeds from an initial public offering, the company grew steadily over its first 11 years, building a reputation as an agile, reliable provider of high-performance widgets. Its fiscal revenues rose to a record of nearly $200 million.
A bold transaction in 2005, however, would transform XYZ. In April of that year, the company’s board of directors agreed to an acquisition of an Asia-based supplier of widgets. With the acquisition, XYZ not only expanded its manufacturing capability and improved its cost efficiencies, but also elevated its global presence and its ability to serve a growing base of customers in Asia and elsewhere.
Devising the appropriate mix of management and financial resources to integrate a new international operation required a deft touch from the company’s senior management team. To support the effort, XYZ turned to CFO Insight LLC.
XYZ engaged CFO Insight LLC in November on what initially was construed as a short-term assignment, with two primary goals in mind. One was to fill in an acting chief financial officer role while the company sought out a permanent successor to its retiring incumbent. The second: to help fashion guidelines and processes for integrating the company’s newly acquired Asia operations.
XYZ was looking for more than just an experienced corporate finance executive. With the acquisition of ASIA, the company’s profile had been reshaped. No longer a regional U.S. manufacturer, XYZ was a global provider with an opportunity to scale its operations dramatically. The expanded profile demanded an executive with experience in international business, international merger and acquisition work, and public company experience. An executive search effort to identify the right candidate had been under way for several months, and remained ongoing, when XYZ enlisted CFO Insight LLC in November 2005.
Why CFO Insight LLC?
The CFO Insight LLC Partner engaged by XYZ brought an ideal pedigree to the assignment: More than 30 years of corporate finance experience for publicly held companies, plus a deep history of involvement with international manufacturing operations, audit, investor relations, mergers and acquisitions, ERP systems implementation and global consulting. The Partner also is a published author who has written extensively about strategies tied to company integration and international business.
XYZ executives also believed CFO Insight LLC was the right choice to support the company’s integration and expansion efforts because of CFO Insight LLC bench depth. By calling on additional CFO Insight LLC partners to provide guidance and advice concerning details of international business and integration issues, XYZ could enjoy the collective contributions of dozens of Partners with literally decades of experience.
Even before joining the XYZ senior management team at its headquarters, CFO Insight LLC had conducted a preliminary evaluation of the ASIA acquisition, studying the financial and corporate planning considerations behind the deal.
Upon arrival, CFO Insight LLC began to work with XYZ on a comprehensive review of the integration needs tied to the new Asia operations. One of the key strategies to emerge from the collaboration was an understanding that the new assets could largely be operated within the existing general management structure of XYZ. That viewpoint helped to shape secondary decisions tied to functional integration of engineering, sales and marketing, and manufacturing operations.
Among key initiatives supported by CFO Insight LLC were:
Finally, CFO Insight LLC also was instrumental in preparing for and completing a $70 million public debt offering, proceeds of which would be used to pay down bank debt and strengthen XYZ balance sheet. CFO Insight LLC worked closely with the securities firm that represented the offering to convey XYZ corporate strategy, business planning process and long-term objectives. CFO Insight LLC articulation of the company’s business strategy and growth prospects provided the investment banking firm with the confidence it needed to bring the offering successfully to market.
What began as a two-month assignment for CFO Insight LLC ultimately spanned a nine-month period of transformation during which XYZ doubled in size, integrated a strategically critical global acquisition, delivered lasting improvements in financial reporting and business planning, and refinanced its public and bank debt. CFO Insight LLC contribution was completed as XYZ named a full-time CFO in August 2006.
Buying a company may seem to be a simple matter... available cash ... strategic plan that defines goals and objectives... simply turn on the acquisition machine and begin the buying process. Unfortunately, it isn't that simple. Buying a company requires a business process that considers - certainly the strategy - but also a thorough understanding of Your Company. It also requires a commitment to the acquisition process that will entail numerous false starts, and near acquisitions, and a resource commitment that either includes incremental resources or an allocation of existing resources that formerly managed your business. To do it right, you must thoroughly understand your Company - strengths & weaknesses - the culture, organization depth, key business processes, and how any potential acquisition will fit with your Company.
All of this must be thoroughly understood before you embark on the M&A trail. The following "R U Red E for M&A" checklist will familiarize you with some of the items you should consider before you begin the journey. Is the checklist essential? Consider that more than two-thirds of M&A investments fail to increase shareholder value and achieve the desired results. ... and then you decide if you want to assess your organization's ability to be successful.
CFO Insight LLC